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Rethinking the Digital Pathways of Latin America and the Caribbean

Latin America and the Caribbean need to renew their digital infrastructure if they aim to provide the quality of services that their users need. It’s time to improve the region’s connectivity landscape.

Rethinking the Digital Pathways of Latin America and the Caribbean

For centuries, Rome was the capital of the world, the hub of everything that happened on this planet. All roads led to Rome, because where else could they go? Something similar happened with digital infrastructure. Since the dawn of the Internet in the late 1970s and for many years thereafter, connectivity in our region aimed to facilitate access to knowledge centers and data processing. Over time, as the digital content industry grew, the United States became both the main source and destination of data consumed in Latin America and the Caribbean, agglomerating the largest and most efficient data centers in its digital infrastructure.

No one would think of connecting in Rome to go from Panama to La Paz. In many cases, however, that’s very close to what happens with the flow of information every time we use the Internet. Given that in our region most of the traffic takes place between the north and the south, rethinking the connections between our countries has never really been a priority—which is why if we need to send an email from Central America to Bolivia, instead of going in a straight line, the data flows through nodes in the US.

Without going into great technical detail, this worked and continues to work quite well for many applications, but as it was with the roads and Rome, the demand for connectivity has changed. What was conceived as a network of networks to share access to large, centralized databases changed completely with the growth of streaming, the advent of cloud computing and the birth of the Internet of Things. This new demand requires a network in which local and regional connectivity play a much bigger role. In other words, the radial design of our region’s digital infrastructure may no longer make much sense.

A new Rome for the Internet of LAC

While in fiber optics light travels at about 200,000 km/s, following traditional pathways can be problematic: crossing more than 10,000 km/s to and from servers in the US can take longer than 100 thousandths of a second. This concept is called “latency.” The ping (for packet Internet groper), which is the time it takes for a local connection to communicate with a remote computer on the IP network, is used to monitor latency. The ping is measured in milliseconds and the lower, the better. A 20ms ping is ideal, but one of 100ms is already critical.

This 100ms delay is acceptable for some applications (email, web browsing), but it is an eternity when it comes to critical applications (gaming, financial transactions, autonomous vehicles). Distance matters. Just ask your teenagers which servers they use to play FIFA 2019! You’ll be surprised to see that they identify them perfectly. On the other hand, do you know where your work documents are stored?

Similarly, the transport capacity of international fiber optics is neither infinite nor cheap. The international transmission cost of high-volume transported data (especially high-definition videos) made Internet service providers (ISPs) and overt-the-top (OTT) content generators begin to take measures to shorten distances and store content as close to their customers as possible quite a few years ago. Instead of bringing each chapter of Breaking Bad tens of thousands of times from California to Argentina or reproducing the hundreds of millions of views of the “Despacito” video clip in Latin America from YouTube’s servers in Seattle, the content is stored very close to the client (in cache memory) and transmitted from there. Result: everyone wins, users are happy, and operating costs are reduced.

The outcomes we seek

What does all this imply for digital infrastructure in Latin America and the Caribbean? These new trends open a wide range of business opportunities, although not without a few challenges. First of all, in most countries in the region, the costs of setting up and operating data centers are higher than in the US. Likewise, it is very difficult to match the quality of service that can be obtained by operating from the US in terms of connectivity and the reliability of electric power distribution. Finally, the shortage of regional optical fiber and the lack of local connection nodes (known as IXPs) also discourage new capacity installations.

However, solving these challenges would have two medium-term effects:

1. More and better local storage. The greater and more complex digital demand is driving the appearance of so-called “hyper-scale data centers” (don't forget this term, it’s creating quite a buzz) in the region.

These hyper-scale data centers are quite different from what we were used to: they are gargantuan facilities (more than 10,000m2, covered, and with the power consumption of a small city), built for large technology companies such as Facebook, Google, Amazon Web Services and Microsoft (Azure) following Tier III or EDGE Gold quality standards. So far, Sao Paulo and to some extent Santiago, Chile have been home to the largest concentration of high capacity data centers in the region.

Alongside these monsters, the demand for data to be as close as possible to the consumer area has given rise to “edge data centers” (another buzz term for you to remember). Edge data centers can be high capacity, but their distinguishing feature is their proximity to consumption points, which is essential for cloud computing services, Internet of Things, and hi-fi streaming. Located in the cities’ outskirts, these centers can be housed in telephony towers, football stadiums, or convention centers.

2. New high-capacity routes: While international connectivity with the US will continue to be relevant, the demand that is set to increase the most is for local, national, and regional fiber to facilitate efficient traffic between consumption points and both edge and hyper-scale data centers, since the latter are where the most critical and highest volume data will be stored.

Unfortunately, connectivity between the main consumption poles in Latin America and the Caribbean is still very poor. It is easier and cheaper to establish a digital connection between Santiago and São Paulo through Miami than to do so through Argentina or Bolivia. Here, again, large data providers are looking for connectivity providers to support them, although they don't always find them.

These new trends open a wide range of business opportunities, although not without a few challenges. For this reason, IDB Invest supports the development of better broadband infrastructure for the region. We regularly speak with independent capacity providers from data centers and wholesale operators of regional fiber and high capacity metropolitan rings in an attempt to understand their needs and challenges.

Without this infrastructure, keeping the region competitive and thriving in the new digital era will be impossible.■


Gonzalo Arauz

Gonzalo Arauz is an investment expert in telecommunications, media and technology (TMT). He is a lead investment officer of IDB Invest, based in Bu

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